Advertisers seek clarity from the central bank on their mode of payment for social media advertsLast week, Nepal Rastra Bank issued a circular saying any payment made outside the banking channels for social media advertisements is considered illegal.
In a written circular sent on Friday, Nepal Rastra Bank has directed them to route all such foreign exchange payments through the local banking channels. Advertisers have now sought a meeting with officials of the central bank for a greater clarity in the matter.
One prominent advertiser that will be affected by the new rules is Nepal Tourism Board, a national body for promotion of tourism, which has been engaged in widespread digital marketing for the promotion of Visit Nepal Year-2020. But officials say the board has had to depend on informal payments for digital advertisements.
“We make payments to the advertising agencies for digital advertising and they make payments in their own ways with US dollar cards,” said Archana KC Rana, who oversees the digital marketing department at the board. The board currently has a budget of Rs2.5 million for the current fiscal year for digital marketing, according to Rana.
With advertising agencies not making payments for advertisements on social media like Facebook, Twitter and YouTube through the banking channels, Nepal Rastra Bank last week said that any payment made outside these channels for social media advertisements is considered against the foreign exchange regulation law and is punishable.
The central bank also said the move is aimed at controlling the informal economy and bringing transparency in foreign exchange outflows.
The central bank’s announcement has shocked the advertising agencies and website developers who have been relying on informal mode of the payments.
Amid growing use of social media in the country, the advertising agencies are increasingly putting advertisements on social platforms to promote their client’s products and services. Website developers also have to make payment for purchasing space on the web and many of them are involved in boosting the social media presence.
Advertising agencies said they were forced to adopt the informal mode to pay for their social media ads as there is no clarity on whether payments could be made for social media advertising and a defined threshold in US dollars for the same with the country’s banks.
As per the central bank circular, the country’s commercial banks can provide up to $3,000 for service imports against payment in Nepali rupees. The banks can also provide between $3,000 to $10,000 for service imports, based on the recommendation of the regulator for the sector the company is operating in. For making payments valued higher than $10,000, the approval of the central bank is mandatory.
However, the central bank directive does not specify whether the payment for advertisements on social media could be considered payment for service imports.
“Due to a lack of clarity about whether it is legal to make payments for social media advertisements, we have been using informal channels such as making payment through friends and relatives living abroad,” said Santosh Shrestha, managing director of Mars Advertising and Research Private Limited. “Nepali residents who have obtained dollar cards from the Nepali banks also help in making payments when they travel abroad.”
According to Shrestha, the settlement of such payments is also difficult. “Usually, such a payment is made to family members or relatives of the person who has made payments abroad on behalf of an advertising agency.”
Another method has been to make payments through the advertising agencies in India. Spectrum Advertising and Media Consultant, another advertising agency, said it is making payments for social media advertisements through the Indian agencies.
“We use the banking channels to pay in Indian currency to the Indian agencies by deducting TDS (Tax deducted at source),” said Raj Kumar Bhattarai, chief executive officer at Spectrum Advertising and Media Consultant. “Indian agencies charge certain commission for working as mediators.”
An official of an agency based in Kupondole, Lalitpur, which is working in the field of digital marketing, also said that his co-founder, a foreign national, has been managing payments to the social media.
With advertising agencies using informal channels for making the payments, officials at the central bank and commercial banks said they have no records of payments made to the foreign social media through the banking channels.
“There has not been any payment through my bank to foreign social media for advertisement,” a senior official at a commercial bank told the Post on condition of anonymity, since he is not authorized to speak to the media. “‘It is probably because the central bank has not clarified whether it is legal to make payments abroad for social media advertisements.”
However, the central bank officials said the bank has not prohibited payments for advertisements on social media platforms as long as the agencies here produce signed agreement papers with the social media company and pay the tax.
“We treat all such payments as payment made for service imports,” said Guru Prasad Poudel, director at the foreign exchange management department of the central bank. Advertising agencies want clarity in the matter as well as want the payment threshold to be increased. “As the value of advertising on social media is increasing, the central bank should ease the process to make payment. If it is a tedious process, people seek to bypass the process,” said Shrestha.
Advertising agencies say due to their compulsion to pay informally, they have not been able to show the payments made for social media advertising as expenditure in their balance sheets which has forced them to pay extra income tax to the government.
But central bank officials said they want to ease the situation for the advertising agencies and website developers by enabling them to make the payments through the banking channels.
“One option we have considered is allowing the commercial banks to issue low value US dollar cards for making payments for advertisements on the social media,” said Poudel. “We also want to hear from advertising agencies and others about other options. We are ready to facilitate their bigger payments without affecting the foreign exchange reserves needed for our economy.”